Many people here were so confident a few days ago that the tariffs were just some 4d chess to get interest rates down, despite this not making any sense.
It seems to me the core issue at hand is that Trump has made a grave strategic error in terms of who really holds more cards in the trade battle, specifically with China.<p>This bond lever - the threat to abruptly shut off US debt supply - is just one of them. But China can also simply manage far more easily without US imports than the US can manage without Chinese imports. And for any given pain threshold, China can bear that far longer than the US will, because of the authoritarian control the government can exercise.<p>And then from a geopolitical point of view, even if China loses they win - because the rest of the world fully views this as an act of betrayal and lunacy by the US and the more negative the outcome the better China looks by comparison as a reliable, rule following partner on the world stage.<p>Basically what I see here is that we have a game of poker where China holds nearly all the cards and Trump is just pushing more and more chips onto the table.
It's hard to say where the lower bound for the value of American companies is now. Is it zero?<p>Usually one could estimate the absolute minimum of future earnings.<p>But the current administration seems to be set on redirecting those earnings away from investors towards the government. And I don't see what could limit the extent to which they do so.
At what point do investors lose confidence that the US govt will be able to make these bond payments in 10 years? Whatever was considered 'business as usual' through decades of republican/democratic presidents is chucked to the bin now.
>"You look at what happened to the curve last night, that was pretty extreme by anyone's metrics - 2s-10s steepening 30 basis points in a few hours, I've certainly never seen that,"<p>The 2s-10s spread tends to act a bit like brakes for the economy. The 10 year yield is largely down to inflation and the 2 year largely controlled by the federal reserve. They raise the 2 year above the 10 year to slow the economy if you are getting inflation and lower it if the economy looks like slowing too much and going into recession. This looks like people expecting recession.
Just so I understand how this works… interest rates on these bonds are going up because of low demand for the bonds? How does this translate to interest rates set by the fed? Do these have to go up to match? .4%?
There are several things at play.<p>1) Trump is playing a storyline. The Market place of ideas in America has one side which is under a monopoly. It sets its own prices, decides what information enters and exits, decides what the market SHOULD look like. It manages half the voting population.<p>This is why “Trump does what he says” resonated. Previous lawmakers played the role on TV, but in back room deals, acted as if reality mattered.<p>Trump does not. He will continue to not do so, and the ideas sold in the market place that supports him, will continue to sell ideas to support it. Even if they don’t make logical sense.<p>It’s like science fiction, reality doesn’t matter.<p>Without addressing the information asymmetry, no democracy can function. No decisions can be made.<p>This is the nicest way I can put it to people, without being blunt. This has been the work of decades, reaching all the way back to watergate.<p>2) Jobs are being lost to automation faster than they are lost to outsourcing. China is the last country that will raise its standard of living through manufacturing. India has to pivot to services, to have a hope of doing anything. All of this is human capital intensive.<p>3) Wealth inequality is the problem - and frankly, if you have money to spare you are simply going to buy assets. This will be bought from people who are increasingly affected by cost of living issues, and have to sell their assets. This means taxes<p>4) If Americans want a snowballs chance in hell, there need to be special elections around the country in 2025, to take control of congress. Republican senators and congressfolk are threatened by the voting base if they break with Trump, which they wont anyway. The checks and balances are broken, see point 1.<p>You cannot win in a broken market place. You cannot fix a marketplace of ideas with government power, because that breaks the principle of Free speech. If you are a government who IS in power because of market place monopolies, these rules do not apply to you.<p>Trump is serious about devaluing the dollar. The only reason he may not, is because the viewers/storyline suggest he shouldn’t.<p>I will regret making this post, because of the comments it will generate. It is general enough for a million holes to be poked in it. Sure. This is an outline, that covers most of the pieces that are on the board.
My utopian vision to combat the threat of China (dependency, war, etc.) is as follow.<p>We should form a "Super West". Instead of a divorce between the US and EU and others, the exact opposite should happen: an unbreakable union with shared values, investments, legislation and protections.<p>Such a unified block could then intelligently "tax" China for industries we consider to be strategic. You can't do this without a unified West. Right now the US is pushing its (former) western allies towards China.<p>I think a unified block with intelligent protections can sustain an advanced West and create conditions where the working class and middle class is not facing an endless race to the bottom.<p>This block could also address a pressing issue of global capitalism, the formation of untouchable monopolies and billionaires. End tax loopholes and yes, I'll say it: cap billionaires. Increase minimum wages and offer more job protection. A unified regulation rather than individual countries undermining common interests.<p>I'm sure that these classic progressive values are unpopular on this forum but I genuinely believe that these values created the middle class in the first place. And the middle class is being eroded and the working class is close to dead.<p>We should not mimic the race to the bottom (which leads to a birth rate 25% of replacement), we should recreate the post war West. A ordinary person should be able to start a family, own a home, etc. If we can't do that, nothing matters.<p>The way to achieve that is cooperation, strict shared values and regulations and a whole lot of technology.<p>The West's trajectory where life kept getting better stopped in the 90s. We need to bring it back.
> The 10-year U.S. Treasury yield , the globe's benchmark safe-haven anchor...<p>The US government is ~37 trillion dollars in debt and rising. They're not going to do anything to cut spending until they hit a crisis so massive that they just can't spend any more. Which is going to have to be a shocker of a crisis given how they've handled the last couple. Raising taxes seems to be off the table too.<p>While it is true that US treasuries are low risk, they are low risk in the way that lending the broke town drunk money are low risk - you can come up with accurate estimates of how likely you are to get the money back. The real mystery has for some time been why people persist in feeding the US government money voluntarily. The math doesn't seem to be ambiguous, the value lent can't be paid back in real terms. Foreign holders of these things are engaging in charity.